Business Organizations Seeking Quick and Inexpensive Resolutions of Business Disputes Need to Know About Delaware’s Rapid Arbitration Act

Arbitration is supposed to achieve quick, fair, and inexpensive resolutions of business disputes. But, seemingly more often than not, arbitration fails to fulfill its promise due to expensive and time-consuming pre-hearing discovery, lengthy hearings, and spiraling judicial review of arbitral awards.

The Delaware Rapid Arbitration Act, which became effective on May 4, 2015, is Delaware’s unique and cutting-edge effort to offer a new brand of arbitration designed to achieve the original promise of quick and efficient justice. While the ultimate effectiveness of Delaware’s Rapid Arbitration program remains to be seen, any business organization looking to resolve its disputes quickly and efficiently should be aware of Delaware’s new arbitration program and consider taking advantage of it in appropriate circumstances.

Here are some highlights of the program:

  • How Does the Delaware Rapid Arbitration Program Ensure a Prompt Resolution?
    The Delaware Rapid Arbitration Act establishes a statutory deadline for the issuance of arbitration awards and then creates strong incentives for arbitrators to issue awards within the deadline.  An arbitrator is required to issue a final award within 120 days of accepting an appointment, a deadline which can be extended only by the consent of the parties and for no more than 60 days.  Thus, 180 days is the longest allowable time period.If an arbitrator fails to issue a final award by the deadline, the arbitrator will lose a portion—or perhaps all—of his or her fee:  if an award is late by less than 30 days, the arbitrator loses 25% of the fee; if an award is 30 to 60 days late, the arbitrator loses half the fee; and if an award is more than 60 days late, the arbitrator loses the entire fee.The Act also limits judicial review of arbitral awards by providing that any challenges to an award must be made within 15 days of the issuance of the award and must be brought directly to the Delaware Supreme Court, thus removing the possibility of multiple levels of judicial review.  An arbitral award can be vacated, modified, or corrected only on the narrow grounds permitted under the Federal Arbitration Act.
  • Can an Award Be Appealed?
    The parties to an arbitration agreement can provide that an award is subject to appellate review by one or more arbitrators.  Without such a provision, an arbitration is subject only to the highly deferential review by the Delaware Supreme Court mentioned above.
  • Who Can Participate in Delaware’s Rapid Arbitration Program?
    So long as at least one of the parties to an arbitration agreement is a business entity formed or organized under Delaware law or headquartered in Delaware, the parties are entitled to conduct their arbitration under Delaware’s Rapid Arbitration program.  There is one notable exception:  if any party is a consumer, the Rapid Arbitration program is not available.  There is no minimum or maximum amount-in-controversy requirement.
  • How Do Parties Select the Rapid Arbitration Program?
    Parties who want to arbitrate their claims under the Rapid Arbitration program must sign a written arbitration agreement which adopts Delaware law and includes an express reference to the “Delaware Rapid Arbitration Act.”
  • How Is an Arbitrator Selected?
    The parties may freely select their arbitrator, so long as the arbitrator accepts the appointment. The parties’ selection can be made in the arbitration agreement, pursuant to a procedure described in the agreement, or at the time the dispute arises. If the parties cannot agree on an arbitrator, the Court of Chancery, on application by a party, may appoint an arbitrator who is either an expert in any non-legal discipline described in the agreement or a member in good standing of the Delaware Bar for at least ten years.
  • How Is an Arbitrator’s Fee Determined?
    The Act does not address how the arbitrator’s fee is to be determined. Presumably a fee is agreed to before an arbitrator accepts an appointment. But once an arbitrator accepts an appointment, the arbitrator is bound by the Act, particularly the provisions discussed above about fee reductions for tardy awards.
  • Where Are Delaware Rapid Arbitration Hearings Conducted?
    Hearings conducted under the Act do not need to be conducted within the State of Delaware. They may be held any place—including in a foreign country—selected by the arbitrator.
  • How Does a Party Confirm an Award and Obtain a Final Judgment?
    Unless a challenge is timely filed with the Delaware Supreme Court or the parties’ arbitration agreement provides for appellate review, an arbitral award will automatically be deemed confirmed by the Court of Chancery on the fifth business day after the deadline for filing a challenge to the Supreme Court. Despite the automatic confirmation of awards, a prevailing party must still apply to a court for the issuance of a judgment. If an award is solely for monetary damages, the prevailing party must apply to the Superior Court of Delaware for the entry of a judgment. For all other arbitral awards, an application must be made to the Court of Chancery.

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